Judgement Consolidated Cross-appeals from an order of the High Court in its appellate jurisdiction (August 30, 1933) varying an order of the High Court in its original insolvency jurisdiction (May 9, 1932). The main questions in this appeal and cross-appeal were whether certain moneys which were transferred in 1900 by the grandfather of the appellants Murugappa Chetti and Ramaswami Chetti (since deceased and now represented by his widow) to a firm known as Ar. Ar. Sm., who were adjudicated insolvent on July 15, 1925, were held by that firm as trustees or as bankers, and whether, if such moneys or part of them were held by the firm as trustees, the appellants, who by a partition decree made in 1915 had been allotted a three-sixteenths share of the moneys in question, were entitled to recover that share in full out of the assets of the insolvent firm in priority to the unsecured creditors. By their petition the appellants had claimed against the Official Assignee, the present respondent, Rs.60,000, or such other sum as might be found due to them on the taking of accounts; a declaration that the money which they claimed was property held in trust for them by the insolvent firm ; and other consequential relief. The facts appear from the judgment of the Judicial Committee. Stone J., who heard the petition, gave judgment for the appellants (petitioners), and ordered the Official Assignee to pay to them Rs.44,503, with further interest, and costs. On appeal by the Official Assignee the High Court (Reilly and Burns JJ.) held that the appellants were only entitled as preferential creditors to a portion of the money and must prove in the insolvency for the balance along faith the other unsecured creditors, and they varied the order of Stone J. by directing {he Official Assignee to pay to the appellants Rs. 14,050. 1937. June 7, 8, 10, 14. Sir Herbert Cunliffe K.C., Sidney Smith and Mrs. M. J. Clark for the appellants. There are three points (1.) What was the contract in 1900? Was it agency for investment or mere loan? (2.) What was the effect of the partition decree in 1915 assuming that the contract of 1900 was agency, did the partition decree alter it ? It is submitted that the agency continued. M. J. Clark for the appellants. There are three points (1.) What was the contract in 1900? Was it agency for investment or mere loan? (2.) What was the effect of the partition decree in 1915 assuming that the contract of 1900 was agency, did the partition decree alter it ? It is submitted that the agency continued. (3.) The moneys from the partition were held by the insolvents with knowledge that they belonged to minors, and they were fixed with a trust. The insolvents used the money in their own business, and the appellants are entitled to a charge on the whole of the assets for the money as trust money. The deposit by the appellants grandfather was a contract with agents to invest. From the partition the moneys were held by the insolvents in a fiduciary capacity. The insolvents were also trustees for the minors from the date of the death of their grandfather. [Reference was made to Lewin on the Law of Trusts, 13th ed., p. 932.3 The insolvents mixed trust money with their own, and their assets represent the heap into which they put the trust money. There was an original agreement that the insolvents were agents for investment; and the question is whether a variation in terms can be inferred from the subsequent dealings. It is submitted that a new contract cannot be found from the course of the dealings the insolvents charged commission on loans to themselves, a course inconsistent with their being merely debtors. If they were employed to invest, it was a breach of trust to use the money in their own business ; if an investment could not be found, the money could not be kept for an indefinite or unreasonable period ; the principal should be communicated with. [Reference was made to British America Elevator Co. v. Bank of British North America. ([ 1919] A. C. 658.)] It is not open to the respondent to raise the question of tracing; it was not raised in the "Counts below Law. Rep. 64 Ind. App. 343 ( 1936- 1937) M. P. M. Murugappa C hetti V. Official Assignee of Madras 158 Secretary of State for India v. Raja Jyoti Prashad Singh (( 1926) L. R. 53 I. A. 100, 107.) ; Secretary of State for India v. Parashram Madhavrao. (( 1934) L. R. 611. A. 190,196.) Sidney Smith followed. Rep. 64 Ind. App. 343 ( 1936- 1937) M. P. M. Murugappa C hetti V. Official Assignee of Madras 158 Secretary of State for India v. Raja Jyoti Prashad Singh (( 1926) L. R. 53 I. A. 100, 107.) ; Secretary of State for India v. Parashram Madhavrao. (( 1934) L. R. 611. A. 190,196.) Sidney Smith followed. Roxburgh K.C. and John Bennett for the respondent. The only point in this case was whether the insolvents were entitled to invest some of the money in their own business. If a person is entitled to use some portion of a fund and that portion is undefined, then the whole fund is not trust property. There was no trust in this case, but a contract which could be and was varied. In equity a cestui que trust can sue for the actual property. The grandfather either authorized the insolvents to take loans or ratified their doing so, and by copying the accounts submitted into his own accounts without raising any objection the grandfather adopted the variation of the original contract. There was a species of agency, but no fiduciary relationship is established unless it was the duty of the agent to keep the moneys of his principal at all times separate ; not only separate in account, but separately altogether. Assuming that there was a trust property, it has to be identified. Assuming that the original contract is construed against the respondent, then it is submitted first that the original bargain was varied; a new contract or sub-contract would carry the whole fund Bruner v. Moore, ([ 1904] 1 Ch. 305, 312.) Assuming, further, that the submission as to variation fails, then it is contended that there was a ratification by the grandfather copying the accounts Bowstead on Agency, 8th ed., p. 59, art. 29. Ratification may be by silence or acquiescence Prince v. Clark. ((1823) 1 B. & C. 186.) The English authorities show that mere silence is sufficient Douglas Lapraik v. Burrows (( 1859) 13 Moo. P. C. C. 132,158.) ; Robinson v. Gleadow. ((1835) 2 Bing. N. C. 156.) Ratification by silence would extend to the maximum sum taken at any time. If an agent is entitled to mix money with his own rightfully, then the relationship is not fiduciary Henry v. Hammond. P. C. C. 132,158.) ; Robinson v. Gleadow. ((1835) 2 Bing. N. C. 156.) Ratification by silence would extend to the maximum sum taken at any time. If an agent is entitled to mix money with his own rightfully, then the relationship is not fiduciary Henry v. Hammond. ([ 1913] 2 K. B, 515.) [Reference was also made to Kadiresan Chettiar v. Ramanathan Chetti (A. I. R. ( 1927) Mad. 478.) ; Lyell v. Kennedy (( 1889) 14 App. Cas. 437, 457.) ; and Burdick v. Garrick. (( 1870) L. R. 5 Ch. 233, 240.)] To bring a case within the doctrine of tracing, the money must be traced to a particular asset. This matter was^ raised on the pleadings and was dealt with by the trial judge. Even had it not been raised, it is a matter which the respondent should now be allowed to raise it is an issue of law which arises on facts which have been pleaded Safford & Wheeler on Privy Council Practice, p. 851. In order to get a preference the claimant must allege and prove that there is to be found in the hands of the Official Assignee something which can be shown to be trust property. The onus is on the claimant. Where the trust property is money it is almost impossible to follow it; it loses its identity. If the sum is exhausted in the course of dealing, thenthere is nothing which can be followed Sinclair v. Brougham. ([ 1914] A. C. 398.) That case laid it down that trust money must be traced into actual assets. Official Assignee v. Bhat (( 1933) L. R. 60 I. A. 203.) is consistent with that, except that it lays down a rule as to onus which, it is submitted, is wrong. [Reference was also made to In re Hallett & Co. Ex parte Blane ([ 1894] 2 Q. B. 237.); James Roscoe (Bolton), Ld. v. Winder ([ 1915] 1 Ch. 62.); and Ex parte Hardcastle. (( 1881) 44 L. T. 523.)] Bennett followed. Sir Herbert Cunliffe K.C. replied. The contract of 1900 was one of agency to invest in other firms. There is no evidence of any new contract, and the original contract cannot be construed by what happened afterwards. In Haridas Ranchordas v. Mercantile Bank of India, Ld. 62.); and Ex parte Hardcastle. (( 1881) 44 L. T. 523.)] Bennett followed. Sir Herbert Cunliffe K.C. replied. The contract of 1900 was one of agency to invest in other firms. There is no evidence of any new contract, and the original contract cannot be construed by what happened afterwards. In Haridas Ranchordas v. Mercantile Bank of India, Ld. (( 1919) L. R. 47 I. A. 17.), there was no new contract or alteration of the contract ; a gap in the original contract was filled up. The absence of protest might amount to acquiescence, but that would only be acquiescence to holding particular sums for a time. The cases on ratification cited for the respondent are cases in which the agent entered into contracts with third parties which he was not authorized to make. An Law. Rep. 64 Ind. App. 343 ( 1936- 1937) M. P. M. Murugappa C hetti V. Official Assignee of Madras 159 agent cannot contract with himself. There is no evidence as to what the new contract was. The true conclusion is that the contract was not altered. After the partition decree the insolvents knew that they were dealing with minors money they participated in breach of trust. After the grandfathers death they knew that there was no one to give instructions; they knew that the money was trust money, and they were not only participators, but were themselves committing a breach of trust. The onus is on the person who holds the money to show that the trust money is not in the money which they have. [Reference was made to Lewin on Trusts, nth ed., p. 1082 ; Gray v. Lewis (( 1868-69) L. R. 8 Eq. 526, 543.) ; Sinclair v. Brougham ([ 1914] A. C. 398, 442.); British America Elevator Co. v. Bank of British North America ([ 1919] A. C. 658, 663.); In re Halletts Estate (( 1879-80) 13 Ch. D. 696, 719.) ; and Taylor on Evidence, nth ed., p. 284.] July 22. The judgment of their Lordships was delivered by SIR GEORGE LOWNDES. These consolidated appeals arise out of a petition presented by Murugappa Chetti and his brother Ramaswami Chetti (since deceased and now repre sented by his widow Minakshi Achi) in certain insolvency proceedings in the Madras High Court. The petitioners will for convenience be referred to as the appellants. The judgment of their Lordships was delivered by SIR GEORGE LOWNDES. These consolidated appeals arise out of a petition presented by Murugappa Chetti and his brother Ramaswami Chetti (since deceased and now repre sented by his widow Minakshi Achi) in certain insolvency proceedings in the Madras High Court. The petitioners will for convenience be referred to as the appellants. The Official Assignee of Madras represents a firm known as Ar. Ar. Sm., trading in British India and having a branch in Rangoon, who were adjudicated insolvent on July 15, 1925, and against whose assets the claim of the appellants is made. He will be referred to as the respondent, and the Ar. Ar. Sm. firm as the insolvents. In 1900 one Pethaperumal Chettiar, the grandfather of the appellants and manager of the joint Hindu family of which they were minor members, transferred sums totalling Rs.76,000 to the insolvents in Rangoon. There is no formal record of the terms upon which this transfer was made, and the question is in dispute before the Board. The appellants assert that it was an agency transaction under which the insolvents were to invest the money in other Chetti firms in Rangoon; the respondent, on the other hand, contends that under the original arrangement they were at liberty either so to invest the moneys or to utilize all or any part of them in their own business. In 1915 a partition decree was made by the Chief Court of Pudakottai, a Native State in Southern India of which the joint family were subjects. By this decree three-sixteenths of the moneys in question were allotted to the share of the appellants, and the grandfather, Pethaperumal Chettiar, was appointed guardian of their property. It is not disputed that the terms of the decree were communicated to the insolvents in Rangoon. Pethaperumal Chettiar died on September 18, 1918, and no guardian was appointed in his place, though both the appellants were then and until shortly before the date of the insolvents1 adjudication minors under the law of Pudakottai. In 1919 or 1920, at the instance of Muthayya Chettiar, the father of the minors, the original account in the books of the insolvents appears to have been closed, and a separate account was opened in their books of the appellants three-sixteenths share. In 1919 or 1920, at the instance of Muthayya Chettiar, the father of the minors, the original account in the books of the insolvents appears to have been closed, and a separate account was opened in their books of the appellants three-sixteenths share. There was then a sum of Rs.27,000 standing to their credit, which was increased to Rs.44,503 at the date of the insolvency. The appellants by their petition claimed that these moneys were in effect a trust fund in the hands of the insolvents, and should be paid over to them with interest by the respondent in priority to the claims of other creditors, which the respondent denied. The petition was heard in the High Court by Stone J., who upheld the claim and made an order for the payment to them of the Rs.44,503, with further interest and costs. The respondent appealed, and the learned judges of the Appeal Court (Reilly and Burns JJ.) varied the order of the lower Court and held that the appellants were only entitled as preferential creditors to a portion of the said amount, and must prove in the insolvency for the balance along with the other unsecured creditors. Both parties have appealed to His Majesty in Council, the appellants asking for the restoration of the trial judges order, Law. Rep. 64 Ind. App. 343 ( 1936- 1937) M. P. M. Murugappa C hetti V. Official Assignee of Madras 160 and the respondent seeking to get rid of so much of the Appellate Courts order as gave the appellants priority in respect of a part of the fund. The main questions in the appeal are as to the terms upon which the insolvents accepted the original sum of Rs.76,000 in 1900, and whether the relationship so established was subsequently changed. No receipt or written acknowledgment is forthcoming. The appellants are, of course, unable to depose themselves as to the transaction, and their father, Muthayya Chettiar, died before the present question arose. There is, however, in the record, a letter from the head firm of the insolvents at Devakottai, dated November 7, 1900, and addressed to the Rangoon branch, by which the latter were instructed to lend the money "to our Chetti firms," meaning clearly, as their Lordships think, other Chetti firms with whom the Rangoon branch had business dealings. There is, however, in the record, a letter from the head firm of the insolvents at Devakottai, dated November 7, 1900, and addressed to the Rangoon branch, by which the latter were instructed to lend the money "to our Chetti firms," meaning clearly, as their Lordships think, other Chetti firms with whom the Rangoon branch had business dealings. Subsequent letters make it evident that this was understood to be the arrangement by the Rangoon branch see in particular the Rangoon letters of July 26, 1908, and December 5, 1911. This their Lordships hold to be confirmed by the depositions of various employees of the insolvents in Rangoon, and they have little doubt upon this evidence that the money was entrusted to the insolvents to invest in other Chetti firms, and that they had no authority to employ any part of it in their own business. It is, however, clear that from a very early date they did so employ a part of the fund, and that this practice was by degrees so expanded that shortly after Pethaperumal death Rs.93,594 out of the moneys then representing the fund was being utilized in the insolvents business, and only Rs.38,567 was out on loan to other firms. It is also established that the insolvents furnished accounts from time to time of their dealings with the fund showing its actual disposal, and that Pethaperumal copied these accounts into his own books apparently without demur. The respondent contends that if the original arrangement was merely of an agency character (as their Lordships have found) this course of dealing established a new contract between the parties by which Pethaperumal authorized the insolvents to deal with the fund in this way, or, alternatively, that it constituted such a ratification of their dealings with the fund that it should be held that the whole must be regarded at the date of Pethaperumal’s death as merely a bank deposit with the insolvents, in respect of which the appellants could claim no priority over other creditors. In support of the first branch of this contention the respondents counsel cites the judgment of Sir John Edge in Haridas Ranchordas v. Mercantile Bank of India, Ld. In support of the first branch of this contention the respondents counsel cites the judgment of Sir John Edge in Haridas Ranchordas v. Mercantile Bank of India, Ld. (( 1919) L. R. 47 I. A. 17.), but their Lordships think it affords no support to the contention, as in that case all that the subsequent dealings were held to establish was a term upon which the original contract was silent. Their Lordships are quite unable to agree that a new contract, or a variation of the original contract, can be proved by such means, even were the terms of the supposed new contract less vague than is suggested here. Nor do their Lordships think that the doctrine of ratification can be applied so as to turn the fund originally held by the insolvents as agents in a fiduciary capacity into a mere deposit with them on ordinary banking terms. There is nothing whatever to show that Pethaperumal had full knowledge of the facts (see s. 198 of the Indian Contract Act, which admittedly applies). He was living in a remote village in a Native State in India, the accounts furnished to him were very obscure, and no attempt was made to explain to him what his agents in Rangoon were doing, or why they had so deviated from their original instructions. It is also at least doubtful whether what the agents did could be regarded under the circumstances as acts done on his behalf (see per Lord Maugham in Imperial Bank of Canada v. Begley ([ 1936] 2 All. E. R. 367.)), and it is admitted on the evidence that the insolvents charged the account in every case, whether the interest credited to Pethaperumal came from themselves or from outside investments, with the regular agents commission, and when there was a question of loss on an investment, made it quite clear that no responsibility for any loss rested upon them. Law. Rep. 64 Ind. App. Law. Rep. 64 Ind. App. 343 ( 1936- 1937) M. P. M. Murugappa C hetti V. Official Assignee of Madras 161 On the whole, their Lordships are satisfied that from the beginning, the insolvents were with regard to the whole fund in the position merely of agents entrusted with money to invest, and that this relationship still existed unchanged at the date of Pethaperumals death, when they became (if indeed they had not already become, as from the date when the terms of the partition decree were communicated to them) trustees for the minors. This was the conclusion to which the learned judge in the lower Court came and upon which the order made by him was based. The Appellate Court, on the other hand, thought that the nature of the fund must be taken to have changed by the time of Pethaperumals death owing to his acquiescence in the dealings by the insolvents, and that only so much of the fund as was then invested outside the insolvents firm could be treated as a trust fund in their hands, but that qua the larger part of it, which had been utilized in the insolvents business, there was no fiduciary relationship remaining. It is possible that the acquiescence of Pethaperumal in the unauthorized dealings by the insolvents might have debarred him from claiming compensation in any shape in respect of particular transactions—their Lordships have not to come to any conclusion as to this—but in their opinion it could not affect the fiduciary position in which the insolvents stood towards the minors three-sixteenths share. This should, their Lordships think, be the end of both appeals. But counsel for the respondent has contended before the Board that the appellants, in order to succeed in their claim as against the general body of creditors, must go further, and trace the fund in specie as in the hands of the insolvents at the date of their adjudication. It is objected on behalf of the appellants that no such case was made in the Indian Courts, and that it ought not therefore to be allowed here. It is obvious that if this contention had been put forward in India it would have applied to the whole fund as dealt with by the first Court, and to the portion held to be a trust in the hands of the insolvents by the Appellate Court. It is obvious that if this contention had been put forward in India it would have applied to the whole fund as dealt with by the first Court, and to the portion held to be a trust in the hands of the insolvents by the Appellate Court. But beyond possibly a passing reference to the question in the judgment of Stone J. there is no discussion of it in either Court, and it is admitted that the Appellate Court did not take it into consideration at all. Their Lordships can only conclude that no serious argument on the matter was addressed to either Court. If it had been put forward their Lordships think that further investigation of the insolvents accounts might have enabled the appellants to meet the objection, and they must therefore, in accordance with the well-established practice of the Board, refuse to go into the merits of this contention. Under these circumstances their Lordships find it unnecessary to consider the question as to where the burden of proof lies in such a case, or as to any possible conflict between the principles enunciated in Sinclair v. Brougham ([ 1914] A. C. 398.) and the judgment of this Board in Official Assignee, Madras v. Krishnaji Bhat. (( 1933) L. R. 60 I. A. 203.) For the reasons given above, their Lordships will humbly advise His Majesty that the appeal of M. P. M. Murugappa Chetti and Minakshi Achi should be allowed; that the order of the Appellate Court, dated August 30, 1933, should be set aside, and that of the lower Court, dated May 9, 1932, restored; and that the appeal of the Official Assignee should be dismissed. The costs both in the High Court and before this Board must be paid by the Official Assignee.